American Enterprise Institute Examines Puerto Rico’s Fiscal Crisis

As Puerto Rico Governor Ricardo Rosselló petitioned the fiscal oversight board today for relief under Title III of PROMESA (which the board of approved), the American Enterprise Institute was hosting a conference titled “Puerto Rico’s ongoing economic crisis.”

The discussion on economic reform options for Puerto Rico to revitalize its economy and restore order to its public finances began with remarks from Jose Carrion, chairman of the Financial Oversight and Management Board for Puerto Rico. Mr. Carrion focused his remarks on the board’s early achievements – i.e. its approval of Governor Rosselló’s amended fiscal plan – and describing the hard work that lies ahead. According to Mr. Carrion, without sustainable economic growth, simply correcting Puerto Rico’s course will not end the economic crisis.

Following Mr. Carrion’s remarks, a panel of experts spoke briefly and answered questions while R Street Institute senior Fellow Alex Pollock served as moderator. The following were members of the panel:

Andrew Briggs, resident scholar at American Enterprise Institute and former principal deputy commissioner of the Social Security Administration (SSA)

Anne Kruger, senior research professor of international economic at the H. Nitze School of Advanced International Studies at Johns Hopkins University and a senior fellow at the Stanford Center for International Development (SCID)

Desmond Lachman, resident fellow at the American Enterprise Institute and former managing director and chief emerging market economic strategist at Salomon Smith Barney

Antonio Weiss, senior fellow at Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government and former counselor to the secretary at the US Department of the Treasury

Each panelist spoke of the issues plaguing the U.S. territory and provided their own explanation as to how Puerto Rico ended up in its current fiscal state. For example, in blaming actions taken by both the local territorial government and the federal government, Dr. Krueger went back to the 1930’s and cited former Puerto Rico Governor and one-time member of President Franklin D. Roosevelt’s “Brain Trust” Rexford Tugwell for laying the foundation. The panelists also provided their perspectives on actions that could be taken to correct Puerto Rico’s fiscal course, since as one panelist noted, Puerto Rico has been referred to as the “jewel of the Caribbean.”

For his part, Antonio Weiss commended the progress that has been made since PROMESA was fist enacted. Mr. Weiss, who played an integral role in crafting the legislation, reminded everyone that PROMESA reflects all the imperfections of comprise; it was not an easy vote for most Members of Congress, but the bill passed with significant bipartisan support. Mr. Weiss also suggest an agenda for correct path forward: Continue the stay on litigation by enacting Title III of PROMESA (he spoke before the news was reported); Address the inequalities in federal funding for healthcare, including Medicaid parity; and Provide tools for economic growth in Puerto Rico, including the Earned Income Tax Credit (EITC).

When the focus shifted to questions from the audience, one attendee addressed the elephant in the room; noting that on June 11, Puerto Ricans will vote on their preferred political status, he asked if any of the panelists had thought about the impact of status on the economic situation. Given that the current fiscal crisis is directly tied to the inequitable treatment the territory receives in comparison to U.S. States, Puerto Rico’s status as a U.S. territory is a part of the discussion on chartering a successful path forward.

In responding, the panelists agreed that it would be unwise (and also unlikely) that Puerto Ricans would choose independence, so Dr. Krueger opined on the unlikelihood of Puerto Rico achieving statehood because Congress would not act to admit a new Democrat-leaning state without a counter Republican-leaning state. Governor Rosselló – a member of the Democratic Party – recently disputed the notion of a likely Democratic state in an interview with the Washington Examiner: “We really have the behavior of a swing state. I would venture to say that on the district side, you’d probably get more Republicans or at least half Republicans on the onset. … I see Puerto Rico as a battleground state.”

These conferences help bring awareness of Puerto Rico’s fiscal crisis to fellow U.S. citizens residing in the 50 states, but without addressing the issue of Puerto Rico’s political status, any suggested action would only be a temporary fix.

Click here for video of the conference as well as additional background on the panelists.